Treasury Needs Exit Plan for Ally Financial, Says Watchdog

The U.S. Treasury needs to develop a
concrete plan for exiting its 74 percent stake in auto
financing company Ally Financial Inc, the second-largest
remaining recipient of federal bailout dollars, an internal
watchdog said in a report released Wednesday.

The U.S. Treasury needs to develop a
concrete plan for exiting its 74 percent stake in auto
financing company Ally Financial Inc, the second-largest
remaining recipient of federal bailout dollars, an internal
watchdog said in a report released Wednesday.

The agency, however, must exercise "great care and
coordination" with the U.S. Federal Reserve in planning its exit
to make sure Ally maintains a viable presence as a lender to the
U.S. auto industry, said the watchdog, the special inspector
general for the U.S. government's Troubled Asset Relief Program.

Starting in 2008, the government pumped $17.2 billion into
the Detroit-based lender, then known as GMAC, to keep financing
available to the auto industry, which was receiving its own
bailout. Unlike General Motors and Chrysler,
however, the Treasury didn't require that GMAC produce a plan
for dealing with its liabilities, particularly toxic subprime
mortgage loans that were piling up losses.

In March 2011, Ally, the one-time in-house lending unit for
GM, filed for an initial public stock offering that would have
allowed the Treasury to sell some of its stock, but the plan was
shelved. In May, Ally's Residential Capital mortgage unit filed
for bankruptcy, and the lender launched a plan to sell
international operations to speed up taxpayer repayment.

Ally still owes taxpayers $14.6 billion, according to the
inspector general.

In a letter responding to the report, Timothy Massad,
assistant Treasury secretary for financial stability, defended
the agency's actions during the financial crisis and said it
does have a strategy for exiting its Ally investment. After the
ResCap bankruptcy and the international sales are completed,
Treasury can either sell its stock or sell more Ally assets,
Massad wrote.

In an interview, Special Inspector General Christy Romero
said Treasury's plan is not concrete enough.

"What Treasury has talked to us about is options," Romero
said. "Those are options that exist anytime Treasury has an
investment. That is not an exit plan."

Ally spokeswoman Gina Proia said on Wednesday the lender is
"highly confident" in its ability to repay Treasury in full. "We
have taken a number of steps in 2012 designed to best position
the company to exit TARP, and there has been significant
progress thus far," she said.

As Ally continues to work on plans for repaying TARP,
Treasury has been winding down other major bailouts. Last month,
the agency said it planned to sell its remaining stock in GM,
its largest remaining investment, over the next year or so. In
the same month, it sold its final shares of insurer American
International Group Inc.

The Treasury has said that so far it has recovered 93
percent of the $418 billion disbursed through TARP.

Ally's exit is complicated by the fact it has failed Federal
Reserve stress tests that determine if large banks would
maintain sufficient capital under severe economic scenarios. The
next round of stress tests will be made public in March.

"Treasury has to exercise great care to exit Ally out of
TARP in a way that promotes financial stability not just in Ally
but in the auto industry," Romero said.

In a report released on Monday, the inspector general found
Treasury failed to curb executive pay at companies rescued with
taxpayer funds, including Ally.

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